Chap.16 Business Law

Suzy Anders enters into an oral contract to purchase a tract of land from Bill Hermes. The land is considered worthless, but Anders feels that she has discovered a possible usage that would drastically increase the value of the land. To assure herself of the potential value of the land, Anders orally hires an attorney to investigate the title and records associated with the land in question. Before gaining any information from her attorney, Anders orally contracts with a builder to construct a huge building on the site. Because of the size of the project, a completion time is difficult to predict. Anders now discovers that the land is indeed useless, a fact that she obtains through information from her attorney. Anders now refuses to honor her contracts with Hermes, her attorney, and the builder. Must Anders honor her contractual agreements?

All contracts concerning the sale of land must be evidenced by a writing to be enforceable. The purchase agreement that Anders made with Hermes was oral, and it concerned the purchase of land. The initial oral contract is, therefore, unenforceable under the statute of frauds. When Anders hired an attorney to investigate the property, it was a collateral agreement not directly concerned with real property per se and thus not subject to a statute of frauds application. A construction project concerning the completion of a building must be evidenced by a writing under the statute of frauds because real property is involved. If this hurdle could be overcome, the length of time to conclude the project is only an issue if it would be impossible to complete within a year.

A father's oral promise to his daughter and her fiancée made in consideration of their contemplated marriage is binding when made in the course of a serious discussion.

False

A note or memorandum does not have to contain all the essential terms of the contract to be valid.

False

A promise to grant a mortgage on real property does not require written proof because it is not a transfer of land.

False

A promise to pay an attorney a fee owed by a third person can be enforced without a writing.

False

Customs and trade usage can override the express provisions of a contract.

False

Parol evidence is not admissible to show fraud, duress or mistake.

False

Provisions of a contract will be considered separately and not as a whole.

False

Through incorporation by deference, a contract can consist of both the original document and the detailed statement that is incorporated in it.

False

Under the statute of frauds, an oral contract must be completed within one year after performance begins.

False

When a contract falls within the statute of frauds, the signatures of both parties must be shown to the court.

False

Jones and Clark entered into a written contract for the purchase of an apartment building by Clark. The contract was carefully drafted to set forth the agreement of the parties. It was signed by both parties. Clark subsequently claimed that the contract did not cover all the terms included in the written and oral agreements that the parties had made during their prior negotiations. Jones claimed that the parol evidence rule barred proof of all of their prior agreements. Which claim would be upheld in court?

Judgment would be for Jones. The parol evidence rule applies to both oral and written agreements or other statements made prior to the execution of the written contract. It provides that such agreements may not be admitted to modify or contradict the terms of a written contract that is complete on its face. The contract was carefully drafted in an attempt to set forth the agreement between Jones and Clark and appeared to cover all of the essential terms of the transaction. Thus, the contract is complete on its face, and the parol evidence rule bars proof of all prior agreements, both written and oral.

A contract for the sale of goods with a price of $500 or more requires written proof to be enforceable.

True

Because many oral contracts are legally enforceable, it is a good business practice in the preliminary stages of discussions to stipulate that no binding agreement is intended to be formed until a written contract is prepared and signed by the parties.

True

Details of performance of a contract not expressly stated in a contract will often be implied by the court.

True

If words and numbers contradict each other in a contract, the rule of construction favors the words.

True

In the absence of a statute requiring a writing, a contract may be oral or written.

True

No writing is required for a service contract that can be performed within one year after the date of the agreement.

True

The parol evidence rule does not apply to changes made after the signing of the contract.

True

The parol evidence rule generally excludes words spoken before or at the time a written contract was executed from contradicting the terms of the contract.

True

The parol evidence rule is based on the theory that any oral agreement was abandoned when the contact was written.

True

Under the majority view, a contract that does not satisfy the statute of frauds is not enforceable.

True

When the main purpose of the promisor's promise to pay the debt of another is to benefit the promisor, the statute of frauds is not applicable, and the oral promise to pay the debt is binding.

True

When an insurance policy is ambiguous, the policy is interpreted: a. against the insurer. b. in favor of the insurer. c. according to the dictionary meaning of the words. d. according to the meaning of the words in the insurance industry.

a. against the insurer.

Parol evidence generally is admissible to explain: a. ambiguous terms. b. why signatures are missing. c. why a contract was not performed. d. implied terms.

a. ambiguous terms.

The parol evidence rule: a. applies to complete written contracts. b. prevents proof of fraud. c. applies to incomplete contracts. d. is not designed to preserve the integrity of written contracts.

a. applies to complete written contracts.

An oral contract containing a promise by an executor to pay estate debts from estate funds is: a. binding. b. voidable by the executor or administrator. c. enforceable against the executor only if the executor signs written proof of the agreement. d. enforceable against the other contracting party only if that party signs a written agreement.

a. binding.

The defense of noncompliance may be raised: a. by the parties to the oral contract. b. by third parties such as an insurance company or the IRS. c. both a. and b. d. neither a. nor b.

a. by the parties to the oral contract.

The Uniform Commercial Code contains a statute of frauds rule relating to sales of personal property, specifically: a. goods. b. chattel paper. c. real property. d. none of the above.

a. goods.

A contract is interpreted to give effect to: a. the intent of the parties. b. what the court believes is a fair contract. c. what the defendant thought the contract meant. d. what will be best for the economic life of the community.

a. the intent of the parties.

An oral contract can be enforced when it relates to: a. the purchase of a television set for $200. b. the sale of an interest in land for $400. c. managing a factory for five years. d. a promise to answer for the debt of another.

a. the purchase of a television set for $200.

When a person has performed services under an oral contract that cannot be enforced because of the statute of frauds, such person: a. can recover the agreed payment for the services because a refusal to make payment would be a breach of the contract. b. can recover the reasonable value of the services because there is a quasi-contractual duty to pay for the benefit received from such services. c. cannot recover the value of the services because they were rendered under a unilateral mistake of law. d. can have the party receiving the services arrested for obtaining property by false pretenses.

b. can recover the reasonable value of the services because there is a quasi-contractual duty to pay for the benefit received from such services.

In interpreting an ambiguous contract, one part of the contract: a. must be viewed in isolation. b. must be viewed as a condition. c. must be viewed in connection with the rest of the contract. d. must be viewed as indicating joint and several liability.

c. must be viewed in connection with the rest of the contract.

An oral contract to sell a house is binding if: a. the agreement is witnessed by a member of the clergy. b. there is a tape recording of the agreement. c. the buyer paid the price and received the deed of conveyance. d. the seller is a merchant.

c. the buyer paid the price and received the deed of conveyance.

A promise to pay a debt must be in writing if: a. the debt is for more than $500. b. the debt is now due and payable. c. the promise is to pay the debt of another. d. the debt owed is the promisor's.

c. the promise is to pay the debt of another.

A writing that satisfies the requirement of a writing under the statute of frauds could be evidenced by: a. a note. b. a memorandum. c. a contract. d. all of the above.

d. all of the above.

Parol evidence may be admitted to show that a provision was omitted as the result of: a. fraud. b. accident. c. mistake. d. all of the above.

d. all of the above.

The parol evidence rule does not prohibit proof that: a. the contract was thereafter modified. b. conduct exists that violates the law. c. the written contract is not a binding agreement. d. all of the above.

d. all of the above.

The writing required by the statute of frauds in the case of a contract for the sale of land must: a. be addressed to the other party to the contract. b. be made with the intent to create a writing to satisfy the statute of frauds. c. be signed at the end of the writing. d. describe the land to be sold.

d. describe the land to be sold.

The standard statute of frauds: a. requires full disclosure in the case of consumer sales on credit. b. requires a seller of real estate to obtain a broker's license. c. specifies the punishment of perjury. d. requires that a contract for the sale of land be evidenced by a writing.

d. requires that a contract for the sale of land be evidenced by a writing.